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Oil Prices Hit New High After Yukos Threat, Refinery Fire

Crude costs climb close to $45 amid worries about world supplies.

August 5, 2004, 08:00 pm

LONDON -- Oil prices hit new records on Friday, climbing close to $45, after world supplies were diminished due to a renewed threat to Russian oil major Yukos and a big refinery fire in Texas, reported Reuters.

In early-morning trading, U.S. light crude struck $44.77 per barrel, up 36 cents from Tuesday's settlement and the highest in the 21-year history of crude oil futures on the New York Mercantile Exchange.

London's Brent crude hit $41.50 per barrel, a record for the contract since it started trading in 1988 on the International Petroleum Exchange.

"Fifty, sixty dollars a barrel is thinkable for the first time since 1979 ... But so much has changed between then and now that prices might have to go even higher before demand growth slows down," said Deborah White, senior economist at SG Commodities in Paris.

Oil has rallied more than 30 percent this year as rapid demand growth, especially in the United States and China, leaves little leeway for any supply disruption. Consumption is accelerating at the fastest pace in more than 20 years.

The latest in a string of rallies this week gathered strength after a financial source said Russian oil major Yukos had no money in its bank accounts after bailiffs seized $900 million on Thursday to cover the firm's back tax bill.

Yukos, which pumps 1.7 million barrels-per-day, or 2 percent of world supplies, is battling bankruptcy from a multi billion-dollar tax debt that is threatening its ability to continue exports. "Production needs can still survive for a few weeks, but the time is coming to pay for transportation fees," a financial source said.

Gains on the oil markets were also driven by refinery problems in the United States, which heightened anxieties that the refinery system is over-stretched.

A fire on Thursday shut a gasoline-producing unit at BP plc's 470,000 bpd refinery in Texas, the third-biggest plant in the United States. The flash fire was quickly extinguished, but it was unclear how long the unit would be shut.